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BUSINESS                 Tuesday 3 January 2017
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            The money numbers you need to know



            LIZ WESTON                   (your debts).                care. In their book “All Your
             NerdWallet                  Your  net  worth  divided  by   Worth,” bankruptcy expert
            Some     numbers    matter  your  lifetime  income,  ex-  (and  current  Massachu-
            more  than  others.  How  pressed  as  a  percentage,     setts   senator)   Elizabeth
            much  you  make  is  impor-  is  your  wealth  ratio  —  or   Warren  and  her  daugh-
            tant, for example, but your  what  you  have  to  show    ter  Amelia  Warren  Tyagi
            financial  health  depends  for  all  the  money  flow-   recommend  limiting  must-
            far more on how much you  ing  into  your  life.  If  you’ve   haves to 50 percent of af-
            keep.                        earned  $500,000  and  your   ter-tax income.
            Knowing  certain  numbers  net  worth  is  $125,000,  your   A 50 percent limit isn’t easy
            can  help  you  understand  wealth  ratio  is  25  percent.   to achieve, but it frees up
            how  well  you’re  convert-  If you’ve earned $1 million   money for “wants” (30 per-
            ing income into wealth, as  and your net worth is $2 mil-  cent) and savings or debt
            well as the impact of your  lion, your wealth ratio is 200   repayment  (20  percent).
            spending and tax situation  percent.  There’s  no  pass/  Sticking  to  a  50/30/20
            on that process. The follow-  fail  here.  Younger  people   budget  also  helps  people
            ing  calculations  can  help  likely  will  have  lower  ratios   better survive job loss and
            you make better decisions.   than older people who’ve     other  economic  setbacks    This file photo provided by NerdWallet shows Liz Weston, a col-
            1. YOUR WEALTH RATIO         been saving and investing    by   limiting   their   over-  umnist for personal finance website NerdWallet.com.
            A wealth ratio is a measure  for decades. Knowing your    head.  Having  an  emer-                                              Associated Press
            of  how  effectively  you’ve  number  can  motivate  you   gency fund equal to three
            converted  your  lifetime  in-  to  look  for  ways  to  save   months’  worth  of  must-  last  dollar  you  earned.  If  such as municipal bonds or
            come into wealth.            and  invest  more  so  that   have  expenses  is  a  good   you’re  a  single  filer  in  the  variable annuities, that can
            Calculating the ratio is a key  your ratio grows.         goal after you get on track   25  percent  federal  tax  benefit  people  in  higher
            exercise in “Your Money or  2. YOUR OVERHEAD RATIO        with   retirement   savings   bracket,  the  first  $9,275  of  brackets.
            Your Life,” a guidebook for  How much of your after-tax   and have paid off trouble-   your  2016  taxable  income  Your  future  tax  bracket
            the  simple  living  and  early  income is eaten up by ba-  some  debt  such  as  credit   is taxed at the 10 percent  matters, as well. If you an-
            retirement movements, first  sic,  must-have  expenses?   cards.  Any  loans  may  be   rate, the next $28,375 at 15  ticipate  your  bracket  will
            published  in  1992.  Authors  If  you’re  having  trouble   affordable if the payments   percent  and  the  amount  drop in retirement — which
            Joe  Dominguez  and  Vicki  making ends meet, calcu-      don’t push your must-have    above  $37,650  at  25  per-  happens  for  most  people,
            Robin  suggested  adding  lating  your  overhead  ratio   expenses  over  the  50  per-  cent.                      according  to  experts  —
            up  the  annual  earnings  can  help  explain  why.  It   cent mark.                   Your  bracket  determines  making  deductible  con-
            over  your  entire  life,  as  re-  also can be handy to know   3. YOUR TAX RATES      the value of your itemized  tributions  to  individual  re-
            ported  in  Social  Security  when  you’re  determining   Your  tax  bracket  doesn’t   deductions and tax-advan-   tirement  accounts  now
            statements  or  old  tax  re-  if you can afford new loan   reveal the amount of taxes   taged  investments.  Some-  is  a  good  plan,  because
            turns. To that total, you can  payments  or  how  much    paid on your total income.   one  in  a  low  tax  bracket,  the  tax  breaks  from  those
            add  in  other  money  re-   to  save  in  an  emergency   Instead,  the  bracket  (also   for  example,  doesn’t  get  contributions likely will out-
            ceived  that  wasn’t  report-  fund.                      called  the  marginal  tax   much value from write-offs,  weigh any taxes you’ll pay
            ed to Social Security, such  A  must-have  expense  is    rate)  reflects  how  much   such  as  mortgage  interest  on  future  withdrawals  of
            as  investment  and  interest  one that can’t be delayed   Uncle Sam claimed of the    deductions  or  investments  the IRAs. q
            income,  inheritances,  gifts  or  skipped  without  serious
            and gambling winnings.       consequences.  They  in-
            The next step is to calculate  clude  shelter  costs,  trans-
            your net worth — what you  portation,  groceries,  utili-
            own (the value of your as-   ties,  insurance,  minimum
            sets)  minus  what  you  owe  loan  payments  and  child
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